Democratic Views On Banking Regulation

Banking reform is a topic that poses a great challenge in discussions for laymen and politicians alike. While many immediately recognize the importance of the subject matter, the content is complex and convoluted. Simply understanding the subtle intricacies and minutia of finance, economics, and banking is an undertaking many devote years, if not decades, to claiming a firm grasp of. When considering Democratic views on banking reform, the most basic indicator lies in the fact that the Democratic party in general supports stronger regulations.

The Party of Regulation

Let’s start with the bigger picture. The view from outside the Democratic Party is that, generally, Democrats are the party of regulation. Many would argue that the Democratic Party acts to over-regulate more than regulate, but the point remains: public perception associates the party with such beliefs. There’s a fairly sound rationale behind that too, as the Republicans tends to favor minimal to limited regulation. By comparison even moderate regulatory efforts would be seen as the more extreme of the two. Still – that’s the appearance measured relative to only two generalized points of view, and we need to be more specific.

The view from inside the Democratic Party is more nuanced and varying than it might appear from those looking outwardly in. The two prevailing lines of thinking do both favor banking regulation, but to varying degrees and with different agendas and motivations at play. Essentially – the more moderate minds of the Democratic Party favor regulation that is tempered with recognitions of the importance of free trade and limiting interference therein. Then there are those of a more progressive mindset who view thorough regulation as necessary, regardless of the burdens such regulation may generate. While there are clear nuances that we’ll be exploring shortly, one only has to look at the Democratic National Committee’s website to confirm the value they place on regulatory efforts while we were still under President Obama: “Working with the President, Democrats stabilized the financial system, helped to prevent a second Great Depression, and created millions of new jobs. Democrats cut taxes for working families, provided help for small businesses and homeowners, and strengthened consumer protections. Despite Republican obstruction at almost every turn, Democrats provided relief for hardworking Americans who lost their jobs through no fault of their own.”

Promoting Stability and Protection

The points of particular note for understanding what Democrats in general support (as well as the image they strive to project) with regards to banking & financial reform would be: stabilizing a broken financial system, averting another Great Depression, and empowering customer protections on the behalf of the Americans they purport to serve. This validates their overarching support for regulatory effort and enforcement, but intentionally avoids providing any great detail or specifics. Efforts to provide such detail or specificity would create an appearance that wouldn’t be appropriate for all Democrats, so a far more generalized view has been adopted – reinforcing the public image we first presented.

Hillary Clinton and Democrats for Moderate Regulation

The more moderately minded Democrats, with regards to banking regulation and finance reform, might be thought of as the likes of Hillary Clinton. She certainly isn’t symbolic of the line of thought as a whole, but she has acknowledged and embraced her ties to Wall Street. “Few Democrats have deeper, stronger ties to Wall Street than Mrs. Clinton—bonds that developed during the presidency of her husband, who made a point of making the Democratic Party more finance friendly, and that strengthened during her eight years as senator from New York. After she ended her stint as President Obama’s secretary of state, she regularly gave highly paid speeches to big banks and brokerages totaling $4.1 million in fees.” While many of a more strident liberal or progressive mindset might find this somewhat moderate approach distasteful, proponents would claim it to be the approach of a realist. The line of thought is that while regulation is an absolute necessity, it can be taken too far. Overburdening the banks and financial systems with regulation will hurt the economy. Stunted job growth, higher unemployment rates, and (in time) less revenue generated by taxation as the economy suffers will stand as the indicators. The logic is, essentially, that the goal of regulation is to guide the river, while overregulation is advocating for damming it up.

The more progressive or liberal Democrats, as a counter to the previous view, feel that regulation may have to be burdensome in order to ensure compliance. This line of thinking is shaped by the view that one of the duties of the federal government is to act as a watchdog for corrupt business practices, and that banking and finance regulation is very much a part of that. The goal isn’t to hurt businesses, restrict growth, or limit opportunity – but rather to protect all citizens from abuses. And, given the relatively recent mortgage crisis, those of this mindset would argue that there is substantial reason to be concerned and mistrusting of banks and some corporate entities. While Bernie Sanders ran for President as a Democrat, he serves in the Senate as an Independent. Still – he would serve as fitting representative of this line of thinking. Another excellent example would be Senator Elizabeth Warren. “Warren, a former Harvard Law School bankruptcy professor, has been the face of a grassroots movement calling for Wall Street reform, and her rise in prominence gave voice to national concerns over income inequality. Warren was recruited to run in the 2016 election by Democrats, including a grassroots organization called Run, Warren, Run, but those efforts died down as Sanders’ campaign gained steam.” While Sanders has had a lengthier career in politics, Warren’s background in economics (in both politics and academia) remains incredibly extensive. And, increasingly, their views on Wall Street reform are gaining popularity among disillusioned Democrats.

When Does Regulation Do More Harm Than Good?

The central question this political issue poses is if protective legislation is justified, and (if so) when does it become an element producing more harm than good? The Democratic Party’s answer to the first question is a fairly definitive yes, given what we cited earlier from the Democratic National Committee’s own web site. For Democrats, it tends to be the second question where the answers vary. It’s difficult to answer because it’s difficult to judge at which point we actually shift from appropriate consumer protection and into overt economic restraint.

For Democrats in particular, though, there is an additional factor worth carrying in mind. Some opponents of banking reform will simply label their foes as enemies of capitalism. The reality, instead, is that Democrats simply fear what unrestrained capitalism might result in. This is a difficult distinction to make, but given the predisposition most assume Democratic politicians to carry towards regulation – some Democratic politicians may well lean towards more moderate positioning for the sake of political expedience.